What Is Med-Arb?

Mediation – Arbitration, or “Med-Arb” for short, is a process by which section 27D of the various state Commercial Arbitration Acts allow for an arbitration to turn into a mediation, or for a mediation to turn into an arbitration.

As I have pointed out before, current judicial thinking is to turn away from viewing the litigation process as a cut and dried impersonal dispute solving mechanism to one facilitating a dispute resolution system.

One proposed method is where the parties can utilise two common forms of dispute resolution procedures, mediation and arbitration, each with its unique advantages, using the same person as both the mediator and the arbitrator.

If the process started with a mediation and is unsuccessful, then you save time and money by having the one person already familiar with the issues and personalities ready to adjudicate immediately.

If the process started with an arbitration, then if during the proceedings, it appears that a mediation is called for so that the parties can settle their conflict themselves (the most desired outcome), then you have someone who knows the issues and personalities ready to start mediating right away – to strike while the iron is hot, so to speak.

However, with all the good intentions in the world, there are at least two major problems with this, both concerned with natural justice:

A major reason for success in a mediation is because a mediator engages in private discussions with each party to find out what their real issues, desires and needs are, and to see if s/he can facilitate an open discussion based on these confidential revelations. However, if the parties know that the mediator may become an arbitrator, then they will be less than frank about revealing their real position, or what their weaknesses are, or their bottom line, or their views of the other party or the other party’s actions, for fear that the mediator turned arbitrator may even unconsciously use it against them later on. Further, natural justice requires that a party must be able to answer all allegations made against it in the presence of the other party. But private and confidential sessions negate that.

If the mediator lets slip their view of a particular aspect, or even if s/he says that the other party appears to have a point without even saying how strong that point is, then the arbitrator could not only appear compromised as indicating a view on the issue, but also that there would be a claim of undue pressure to settle. Natural justice requires that a decision maker be unbiased. A mediator is not a decision maker, so this aspect does not arise. But if a mediator becomes an arbitrator, then in such a case, which is more than likely to arise, there would definitely be a perception of bias.

Section 27D(4) of the Act attempts to deal with these issues by insisting that the parties consent in writing before the arbitration continues. This means the parties cannot thereafter complain just because the arbitrator acted as a mediator. Any party can consider what was done at the mediation, and if there are any concerns, they simply do not agree to continue the arbitration.

Nevertheless, this does not cure the evils discussed, quite apart from the extra time and money now required to appoint a new arbitrator. If a party has been openly honest in private discussions and painted itself in an unfavourable light, or revealed certain unfavourable elements, then the obvious position it should take is to refuse to allow the arbitrator to continue. This course of action effectively emasculates the whole procedure.

Not only that, but because each party will not know what the other party has told the arbitrator privately, it cannot know if there could be an element of bias which needs to be addressed, or some allegation which may not come out in public later and which could unconsciously affect the arbitrator’s neutrality. The obvious course of action is likewise to refuse permission for the arbitrator to continue, but that also effectively stifles the whole process.

Section 27D(7) attempts to cure these problems. The arbitrator must disclose to the other party “so much of the information as the arbitrator considers material to the arbitration proceedings”.

But this places the mediator/arbitrator in an unenviable position. For this to work to obviate the problems above, the information must be given before the parties consent, so they can make up their minds to agree, else the appropriate decision is to withhold consent.

But the mediator is now revealing confidential information (and query how much is appropriate) to the other side, who can then say, “thank you very much for that”, and refuse to continue with the arbitration just then, having gained a huge advantage of knowing such confidential formation. The whole exercise has been one large scale fishing expedition, with outcomes worse than a regular mediation, where confidential information should never be disclosed.

This does not mean that med-arb is never suitable. There will be cases where these problems will not occur, and it will be useful then. For example, where the parties can by themselves, with the assistance of a mediator, maintain their ongoing business relationship, and only require an arbitration on a very specific aspect e.g. the quantum to be paid, without adjudicating on the rights and wrongs of the case.